The debt to China began under the regime of Rafael Correa, who came to power in 2007 with a leftist model of government that sought new international allies. Yet, the negotiations around the borrowing and its rapid multiplication raised serious questions about debt sustainability.<\/p>\n
The evolution of Ecuador\u2019s China debt
\n<\/strong><\/h2>\nIn 2008, Correa defaulted on a tranche of foreign debt and began to look for alternative sources of finance. At the same time, China was cultivating new relationships with Latin American countries as it sought secure supply lines of the raw materials it needed for its development, and outlets for its surplus industrial capacity.<\/p>\n
<\/p>\n![\"Chinese](\"https:\/\/dialogue.earth\/content\/uploads\/2021\/08\/Foto-6-scaled.jpg\")
Chinese Ambassador Chen Guoyou and President Guillermo Lasso on 26 May. Guoyou delivered a letter from President Xi Jinping to communicate the desire to strengthen the bilateral relationship. (Image: Ecuadorian-Chinese Chamber of Commerce)<\/figcaption><\/figure>\n<\/div><\/p>\n
China arrived in Ecuador with deep pockets, but the terms of loans were non-transparent with many conditions unknown, according to opposition sectors<\/a>. Part of the money was used to boost electricity generation, flood prevention and agricultural irrigation works. Yet, several of these projects are now the subject of investigations, including the country\u2019s largest hydroelectric plant, Coca Codo Sinclair. According to an examination by the Comptroller\u2019s Office<\/a>, the plant\u2019s distributors have thousands of cracks in them, jeopardising the project.<\/p>\n\n Did you know?<\/b><\/p>\n \n
\nEcuador's debt to China rose from US$6 million to US$8.1 billion between 2008 and 2016.\n <\/div>\n <\/div><\/p>\nThe debt with China experienced a dizzying increase in from 2008 to 2016. In those eight years, it skyrocketed from US$6 million to US$8.1 billion. A year later, Len\u00edn Moreno won the Ecuadorean presidential elections. He managed to renegotiate US$891 million of debt with the China Development Bank (CDB) and Eximbank. Moreno also obtained a US$6.5 billion loan from the IMF at a rate of 2.9%, four percentage points less than the China loans.<\/p>\n
The US plan<\/h2>\n
Early indications are that Lasso will seek to refinance the debt with help from North America. While still a presidential candidate, he spoke to CNN<\/a> of his interest in reaching out to the US and seeking agreements with the IMF or the DFC (the US government\u2019s International Development Finance Corporation). Earlier this year, the Moreno administration and the DFC signed an agreement for a loan of up to US$3.5 billion at an interest rate of 2.48%.<\/p>\nThe DFC was created in 2018 as part of the US policy to regain its hegemony in Latin America in the face of increased Chinese economic activity in the region. On its website<\/a>, and implying a differentiation with China, the corporation states: \u201cThe contracts are transparent, the financing is sustainable, the social impacts are correctly assessed (…). The DFC helps countries avoid opaque financing that often results in unsustainable debts\u201d.<\/p>\nAccording to experts of Chinese geopolitics, however, the DFC\u2019s moves in Ecuador have more to do with politics than economics.<\/p>\n
For the US, Ecuador\u2019s development is of secondary importance. More importantly, the US hopes to drive China and Chinese companies out of Latin America<\/p><\/blockquote>\n
\u201cFor the US, Ecuador\u2019s development is of secondary importance. More importantly, the US hopes to drive China and Chinese companies out of Latin America,\u201d commented Vijay Prasad, visiting researcher at the Chongyang Institute for Financial Studies at Renmin University of China, and John Ross<\/a>, Senior Fellow at the Chongyang Institute, in an article published on the Chinese nationalist news outlet Guancha<\/a> right before the Ecuador election result was confirmed.<\/p>\nThe benefits of Ecuador\u2019s relationship with China<\/h2>\n
Analysts agree that President Guillermo Lasso must look for financing opportunities on favourable terms, while at the same time strengthening its commercial relationship with China, looking beyond it as only a financier.<\/p>\n
\u201cChina is currently the world\u2019s leading economy in terms of market recovery despite the pandemic. The Chinese market, due to its reactivation, is beginning to consume more and more every day,\u201d says Gustavo C\u00e1ceres, president of the Ecuadorian\u2013Chinese Chamber of Commerce (CCECH). C\u00e1ceres sees a promising niche in the more than 600 million consumers in China.<\/p>\n
\n 10,98<\/p>\n
\n
\nmillion barrels of oil exported by Ecuador to China in 2020
\n\n <\/div>\n <\/div><\/p>\nIn 2020, Ecuador\u2019s total exports to China were worth US$3.2 billion in FOB values (market value at customs borders, including transport costs, export duties and cargo). Shrimp (59%), oil (12%), balsa wood (11%) and bananas (5%) account for 87% of Ecuador\u2019s export earnings to China.<\/p>\n
\u201cImports have increased while exports have decreased considerably… At the level of exported volume (metric tonnes), [there has been] a reduction of almost 50%,\u201d states a CCECH report<\/a>.<\/p>\nTo boost production and exports to China, C\u00e1ceres says the Lasso government should seek a balanced trade agreement with Beijing to improve the competitiveness of Ecuador\u2019s star products, such as shrimp, oil and bananas.<\/p>\n
In the case of oil, during 2020, the main markets for Ecuadorian oil were Panama (55.76 million barrels), the United States (40.4 million barrels), Chile (14.83 million barrels) and China (10.98 million barrels).<\/p>\n
However, Lasso\u2019s discourse has not been entirely rigid on trade relations with China. In the same interview with CNN, he said that the relationship must be balanced: \u201cI believe that in international diplomacy we have to be on good terms with God, with the devil and with the whole world\u201d.<\/p>\n
<\/p>\n![\"Ecuador's](\"https:\/\/dialogue.earth\/content\/uploads\/2021\/08\/Foto-3.jpg\")
Ecuador's vice-president, Alfredo Borrero, and Chinese ambassador Chen Guoyou, on the arrival in the South American country of a shipment of 2 million doses from the Chinese laboratory Sinovac, on 3 July. (Image: Secretariat of Communication of Ecuador)<\/figcaption><\/figure>\n<\/div><\/p>\n
Informed debt<\/h2>\n
Carlos Julio Emanuele, Ecuador\u2019s former finance minister and a former IMF official, agrees that the debt with Ecuador should be reviewed.<\/p>\n
\u201cTwo fundamental things should be done: first, debt cancellation, because it is a debt that has been detrimental to the country; and second, release the oil that was given as collateral for the remainder of the loans,\u201d he says. \u201cThe moment the debt is cancelled, there should no longer be any obligation for Ecuador to deliver the oil to China, but to sell it on the international market.\u201d<\/p>\n
The obligatory sale of oil is a condition of one of China\u2019s loans, then economy minister Patricio Rivera acknowledged in 2010, amid an otherwise secretive atmosphere. \u201cThe Ecuadorian government committed to sell 36,000 barrels of oil a day to China for four years as part of the US$1 billion loan agreement signed in August of that year,\u201d El Universo<\/em><\/a> reported.<\/p>\n\u201cThis is one of the issues that leads one to be suspicious of these negotiations, because once they were over, the documents were declared secret,\u201d says Emanuele, who sees a rethinking of the debt as the only viable way forward. Investigations are underway in the US<\/a> into several negotiations for the pre-sale of Ecuadorian oil to Chinese companies. (These are taking place in the US as that is where the movement of money linked to the deals was detected.)<\/p>\n
<\/div><\/p>\n
China arrived in Ecuador with deep pockets, but the terms of loans were non-transparent with many conditions unknown, according to opposition sectors<\/a>. Part of the money was used to boost electricity generation, flood prevention and agricultural irrigation works. Yet, several of these projects are now the subject of investigations, including the country\u2019s largest hydroelectric plant, Coca Codo Sinclair. According to an examination by the Comptroller\u2019s Office<\/a>, the plant\u2019s distributors have thousands of cracks in them, jeopardising the project.<\/p>\n Did you know?<\/b><\/p>\n The debt with China experienced a dizzying increase in from 2008 to 2016. In those eight years, it skyrocketed from US$6 million to US$8.1 billion. A year later, Len\u00edn Moreno won the Ecuadorean presidential elections. He managed to renegotiate US$891 million of debt with the China Development Bank (CDB) and Eximbank. Moreno also obtained a US$6.5 billion loan from the IMF at a rate of 2.9%, four percentage points less than the China loans.<\/p>\n Early indications are that Lasso will seek to refinance the debt with help from North America. While still a presidential candidate, he spoke to CNN<\/a> of his interest in reaching out to the US and seeking agreements with the IMF or the DFC (the US government\u2019s International Development Finance Corporation). Earlier this year, the Moreno administration and the DFC signed an agreement for a loan of up to US$3.5 billion at an interest rate of 2.48%.<\/p>\n The DFC was created in 2018 as part of the US policy to regain its hegemony in Latin America in the face of increased Chinese economic activity in the region. On its website<\/a>, and implying a differentiation with China, the corporation states: \u201cThe contracts are transparent, the financing is sustainable, the social impacts are correctly assessed (…). The DFC helps countries avoid opaque financing that often results in unsustainable debts\u201d.<\/p>\n According to experts of Chinese geopolitics, however, the DFC\u2019s moves in Ecuador have more to do with politics than economics.<\/p>\n For the US, Ecuador\u2019s development is of secondary importance. More importantly, the US hopes to drive China and Chinese companies out of Latin America<\/p><\/blockquote>\n \u201cFor the US, Ecuador\u2019s development is of secondary importance. More importantly, the US hopes to drive China and Chinese companies out of Latin America,\u201d commented Vijay Prasad, visiting researcher at the Chongyang Institute for Financial Studies at Renmin University of China, and John Ross<\/a>, Senior Fellow at the Chongyang Institute, in an article published on the Chinese nationalist news outlet Guancha<\/a> right before the Ecuador election result was confirmed.<\/p>\n Analysts agree that President Guillermo Lasso must look for financing opportunities on favourable terms, while at the same time strengthening its commercial relationship with China, looking beyond it as only a financier.<\/p>\n \u201cChina is currently the world\u2019s leading economy in terms of market recovery despite the pandemic. The Chinese market, due to its reactivation, is beginning to consume more and more every day,\u201d says Gustavo C\u00e1ceres, president of the Ecuadorian\u2013Chinese Chamber of Commerce (CCECH). C\u00e1ceres sees a promising niche in the more than 600 million consumers in China.<\/p>\n 10,98<\/p>\n In 2020, Ecuador\u2019s total exports to China were worth US$3.2 billion in FOB values (market value at customs borders, including transport costs, export duties and cargo). Shrimp (59%), oil (12%), balsa wood (11%) and bananas (5%) account for 87% of Ecuador\u2019s export earnings to China.<\/p>\n \u201cImports have increased while exports have decreased considerably… At the level of exported volume (metric tonnes), [there has been] a reduction of almost 50%,\u201d states a CCECH report<\/a>.<\/p>\n To boost production and exports to China, C\u00e1ceres says the Lasso government should seek a balanced trade agreement with Beijing to improve the competitiveness of Ecuador\u2019s star products, such as shrimp, oil and bananas.<\/p>\n In the case of oil, during 2020, the main markets for Ecuadorian oil were Panama (55.76 million barrels), the United States (40.4 million barrels), Chile (14.83 million barrels) and China (10.98 million barrels).<\/p>\n However, Lasso\u2019s discourse has not been entirely rigid on trade relations with China. In the same interview with CNN, he said that the relationship must be balanced: \u201cI believe that in international diplomacy we have to be on good terms with God, with the devil and with the whole world\u201d.<\/p>\n <\/div><\/p>\n Carlos Julio Emanuele, Ecuador\u2019s former finance minister and a former IMF official, agrees that the debt with Ecuador should be reviewed.<\/p>\n \u201cTwo fundamental things should be done: first, debt cancellation, because it is a debt that has been detrimental to the country; and second, release the oil that was given as collateral for the remainder of the loans,\u201d he says. \u201cThe moment the debt is cancelled, there should no longer be any obligation for Ecuador to deliver the oil to China, but to sell it on the international market.\u201d<\/p>\n The obligatory sale of oil is a condition of one of China\u2019s loans, then economy minister Patricio Rivera acknowledged in 2010, amid an otherwise secretive atmosphere. \u201cThe Ecuadorian government committed to sell 36,000 barrels of oil a day to China for four years as part of the US$1 billion loan agreement signed in August of that year,\u201d El Universo<\/em><\/a> reported.<\/p>\n \u201cThis is one of the issues that leads one to be suspicious of these negotiations, because once they were over, the documents were declared secret,\u201d says Emanuele, who sees a rethinking of the debt as the only viable way forward. Investigations are underway in the US<\/a> into several negotiations for the pre-sale of Ecuadorian oil to Chinese companies. (These are taking place in the US as that is where the movement of money linked to the deals was detected.)<\/p>\n
\nEcuador's debt to China rose from US$6 million to US$8.1 billion between 2008 and 2016.\n <\/div>\n <\/div><\/p>\nThe US plan<\/h2>\n
The benefits of Ecuador\u2019s relationship with China<\/h2>\n
\nmillion barrels of oil exported by Ecuador to China in 2020
\n\n <\/div>\n <\/div><\/p>\nInformed debt<\/h2>\n